First quarter financial results reflect a 66 percent increase in sales volume of separative work units (SWU) compared to the same quarter in 2008 at higher average prices billed to customers. Improved revenue was partially offset by higher costs for producing and purchasing SWU. Profit margins for contract work done for the US government were lower due to costs incurred for anticipated new contract work at the Portsmouth plant for which revenue has not yet been earned and changes in the mix of contract services performed. Revenue from uranium sales, which provide higher profit margins, was also lower. Below the gross profit line, non-capitalized advanced technology cost was $7.5 million or 31% higher in the first quarter compared to the same quarter in 2008.

“In conjunction with the plan announced in February, we reduced the rate of increase in spending on the American Centrifuge project during the quarter. While we did not ramp up capitalized spending on construction and manufacturing, our advanced technology expense was higher, as expected. The expense was related to assembling an initial cascade of AC100 centrifuges and value engineering to reduce the cost of manufacturing the machine,” said John K. Welch, USEC president and chief executive officer. Although our gross profit was higher year-over-year, the additional expense left us with a loss for the quarter.”

“We remain confident in our full-year earnings and cash flow guidance for 2009 as we have good visibility on when our customers will be refueling their reactors as the year progresses,” Welch added.

A majority of reactors served by USEC are refueled on an 18-to-24-month cycle, and guidance for 2009 anticipates an about 40% increase in SWU sales volume that reflects the high number of customer reactors to be refueled in 2009. Therefore, short-term comparisons of USEC’s financial results are not necessarily indicative of longer-term results.

Revenue

Revenue for the first quarter was $505.6 million, an increase of 47% compared to the same quarter of 2008. Revenue from the sale of SWU for the quarter was $427.9 million compared to $245.1 million in the same period last year, an increase of 75%. The volume of SWU sales increased 66% in the quarter while average prices billed to customers increased 5%. Revenue from the sale of uranium was $28.6 million, a decrease of $18.6 million from the same quarter last year. Uranium revenue reflects a 66% decrease in uranium volume sold at average prices that were 77% higher than in the 2008 quarter due to the mix, timing and terms of uranium contracts. Revenue from US government contracts segment was $49.1 million compared to $51 million in the same quarter last year, a 4% decrease, primarily driven by the completion of a contract to process out-of-specification uranium for DOE in 2008.

In a number of sales transactions, USEC transfers title and collects cash from customers but does not recognize the revenue until low enriched uranium is physically delivered. At March 31, 2009, deferred revenue totaled $250.7 million, an increase of $54.4 million from December 31, 2008. The gross profit associated with deferred revenue as of March 31, 2009, was $100.3 million.

Cost of Sales, Gross Profit Margin and Expenses

Cost of sales for the first quarter for SWU and uranium was $414.9 million, an increase of $154.2 million or 59%, due to the substantial increase in SWU sales volume noted above and higher SWU unit costs, partially offset by lower uranium volume. Cost of sales for SWU and uranium reflects monthly moving average inventory costs based on production and purchase costs. The cost of sales per SWU was 16% higher than the year before, reflecting changes in the monthly moving average SWU inventory costs.

Production costs declined $16 million, or 7%, in the first quarter compared to the same period of 2008, primarily as a result of producing 9% less SWU than last year’s record production for the quarter. Production volume was also affected by reduced electricity availability and a partial loss of enrichment capacity for the Paducah plant following a severe ice storm in January 2009. Although production was temporarily reduced, production volume in the quarter remained within the range of normal capacity. Unit production costs increased 3% reflecting an increase in benefit costs and the greater impact of fixed costs on reduced volume. A sharp downturn in the fair value of pension and postretirement benefit plan assets in 2008 will result in higher net benefit costs in 2009. The cost of electric power declined by $20.1 million in the first quarter of 2009 due to a 7% decline in megawatt hours purchased and a 5% decline in the average cost per megawatt hour compared to the same period last year. The company continued to buy power from TVA for SWU production and to underfeed the enrichment process based on market conditions. The quantity of uranium that is added to uranium inventory from underfeeding is accounted for as a byproduct of the enrichment process. Production costs are allocated to the uranium added to inventory based on the net realizable value of the uranium, and the remainder of the production costs are allocated to SWU inventory costs.

The company has purchase around 5.5 million SWU annually from Russia but there were no deliveries during the quarter, resulting in a $96.3 million decline in purchase costs compared to the same period last year. Deliveries resumed in April 2009 following approval of the 2009 pricing contract by the Russian government. The purchase cost per SWU paid in 2009 to Russia is expected to be 11% higher compared to 2008.

Cost of sales for the US government contracts segment increased $4.7 million, or 11%, in the first quarter of 2009, compared to the corresponding period in 2008, due to costs incurred for anticipated new contract work at the Portsmouth GDP for which revenue has not yet been earned and changes in the mix of contract services performed. On May 1, the company entered into an agreement with DOE related to additional services at the Portsmouth GDP.

The gross profit for the first quarter was $42.2 million, an increase of $3.4 million, or 9%, over the same quarter last year. The gross profit improved due to higher SWU volume and average prices billed to customers, offset by higher SWU inventory costs and substantially lower margin for the U.S. government contracts segment. The gross profit margin for the quarter was 8.3% compared to 11.3% in the same quarter of 2008.

Selling, general and administrative expenses in the quarter were $14.5 million, an increase of $2.5 million over the same period last year. Compensation, benefits and consulting expenses increased compared to the first quarter of 2008, which included a $1 million credit to stock-based compensation expense due to a decline in our stock price during that prior period.

Advanced technology expenses, primarily related to the demonstration of the American Centrifuge technology, were $31.4 million in the first quarter, an increase of $7.5 million compared to the same period last year. The increase in advanced technology costs reflects increased research and development activities associated with value engineering the AC100 centrifuge machine to lower its capital cost, as well as preparation for Lead Cascade testing of the initial AC100 series machines. In addition, commercial plant activities have increased compared to efforts in the corresponding period in 2008, including training and procedure development and facility turnover preparations.